‘Cliff’ deal is no panacea for market

As details emerge of the fiscal cliff deal signed just a few days ago, it appears to be a temporary fix that may cause even more uncertainty in the markets. Businesses want certainty. ‘They can’t write their playbook if they don’t know the game’. Read a thoughtful analysis here:

Investors shouldn’t take Wednesday’s stock market rally as a green light for stocks, experts warn, as the unfinished business surrounding Washington’s budget wrangling will likely fuel corporate uncertainty and market volatility for months to come.

Although markets erupted with joy as American lawmakers finally agreed on legislation to prevent the most jarring tax hikes and spending cuts that would have resulted from a failure to reach a deal on the federal budget, the agreement falls far short of the “grand bargain” on broader budget issues that President Barack Obama had wanted. Democrats and Republicans now have less than two months to decide on further spending cuts and raise the $16.4-trillion (U.S.) debt ceiling to avoid defaulting.

Analysts said that until a final outcome on the U.S. budget becomes clear, many U.S.-based companies could put off big decisions, and slow or even halt hiring and capital expenditures – creating considerable doubt about the potential for corporate earnings growth this year.

“Companies can’t write their playbook if they don’t know the game,” said Frances Donald, an economist at Pavilion Global Markets in Montreal.

Standoffs over fiscal reforms in Congress “appear to be an ongoing fact of life,” said UBS strategist George Vasic, “which is not good for investor confidence.”